I get so emotional baby, every time I think of you

June 30, 2016

Forgive the 80s pop hysteria, but the debate around Brexit is becoming ever more emotional (plus there’s always room for a bit of Whitney on this blog). Let’s start with banks’ economists, who have scrambled to revise down their GBP and EUR forecasts, as well as UK growth (Credit Suisse now see -1.0% next year from +2.3%). Then there are wild howls about how it’s dreadful for house prices (Singapore’s UOB bank halts mortgages for UK property) to how it’s fabulous for overseas buyers because of the GBP decline (“Estate agents swamped by calls“). There’s the refusal to believe the UK will leave at all, or that it will definitely remain in the Single Market, or that it’s irrelevant to the globe.

Look, the last point is hardly true, or the world’s attention wouldn’t all be focused on this green and pleasant land. The UK is also the 5th largest economy in the world, and is much more significant than that to financial markets. Why else would one of the Fed’s leading hawks, and financial stability specialist, Jerome Powell, be warning that “These global risks have now shifted even further to the downside, with last week’s referendum on the United Kingdom’s status in the European Union“.

Why else all the focus on not only the Conservative Party leadership election but also the Labour Party one? What international investor has heard of Maria Eagle let alone Stephen Crabb? Suddenly UK politics is in the spotlight, because the world just wants this uncertainty to be over. Blondemoney hears the most emotion amongst those who argue that Theresa May can save Britain and Boris Johnson would be a disaster – and that’s from a Greek living in Athens! Is there really as much clear blue water between those candidates as the world appears to think? Is Boris secretly pleased not to be the frontrunner (YouGov’s latest poll of Party members puts him on 27% to her 36%) – because as a Classics student he knows what can happen to a Caesar in the face of many Brutuses (or should that be Bruti?)

Let’s all take a deep breath. Reading political runes is complex at the best of times and the political landscape is now going through a massive restructuring that frankly we should understand is long overdue. Big economic dislocations cause big political realignments, and it’s only the institutions that dictate the pace of that change. Greece changed in a heartbeat, with its fragmented and proportional system; the UK is taking longer because of its centuries old institutional stability.

Equally its resolution will take some time. Calm down dear, as our ex-PM once told that very same Maria Eagle…